Pricing Clinic - Discounting

On a weekly, if not daily, basis small agencies and individual photographers hear the followingfrom their clients, after they have quoted a price.

"Why is your price so much higherthan XX Major Agency?" At that point the client will quote a price they say they got from thisagency that is often one-half to one-third of what the seller was asking for this particularusage.

Some major agencies provide written quotes on every job so before you evenconsider cutting your price ask them to fax you a copy of the quote. Make sure you are quotingthe exact same usages which is often the problem.

An Answer

Even ifthe usage is the same Cheryl Pickerell at Stock Connection has developed a response that seemsto be working. She tells the client, "We don't do anywhere near the volume of business that XXAgency does, so we can't afford to discount our price as much as they do." She follows thisstatement with more explanation, as necessary. She may emphasize that we are more of a"boutique" agency (implying that clients might be willing to pay more for higher quality)instead of a K-Mart (where the clients get volume produced goods at lower prices). When aclient first calls, they often have no idea of the size of her operation, and assume they aretalking to a large agency. She turns small into an advantage, not a disadvantage.

Atfirst, she didn't expect to receive much sympathy for this line of reasoning, but figured it wasworth a shot. However, more often than not, the client responds, "Oh, I see. Well, then sendme an invoice," (for her higher price).

She also tries to get the message across thatsince the larger agency does such a high volume of sales, there is a better chance that the sameimage will be used by many clients. One strategy that is never an option is to match the largeagency price. The client often rationalizes that they can afford to pay more for a StockConnection image because they're saving money on the large agency image.

Why Does This Work?

A number of things may be happening. Not all of them will happen withevery sale, But, enough happen often enough to give the small agencies and individualphotographers an advantage over the discounters.

The client, often a graphic designfirm, has to have some kind of response to give their client if they are questioned about theprice. They have to be able to say that they made a good faith effort to get the image sellerto reduce the price. This is particularly true if your image is being used in a brochure withan image from the large agency and the client is paying $200 for the image from the large agencyand $600 for yours.

If they are buying images from both you and the large agency, theclient can afford to pay more for your image because the large agency is giving them such adeal. Thus, these large agencies are often doing their competitors a favor when they charge solittle for their work.

They called you in the first place because for this particularuse they liked your image better than anything the large agency was able to show them. Sure,they could settle for something less from the large agency, but that's not what they want. THEYWANT YOUR IMAGE.

Some people like to buy at K-Mart while others prefer to buyat "boutiques". Different buyers approach the marketplace in different ways. Small agenciesmay have to lose the K-Mart shoppers, but they must ask themselves if they will ever be able tomake enough sales to the people who expect discount prices to justify chasing after them.

Some clients insist on always buying the cheapest product, even if it doesn't quitefit their needs. You probably aren't going to be able to sell to these clients, but hopefullyyou will make more money by selling at higher prices to those who are willing to pay a littlemore for the image that is the best solution to their problem.

Your price, whilehigher than the large agency's is reasonable considering what it costs to produce images. Ifthe designer can justify the price to their client, that's all they need.

Considering the overall cost to the client of this project including design costs, printing,mailing, placement if it is an ad, etc. an extra $200 to $400 for the right image isinsignificant.

"I've seen this picture from the large agency used everywhere." Ifyou are going to sell at K-Mart prices you have to sell it a lot to justify the low prices. Alldesigners don't act in the same way. Some would prefer a picture that hasn't been used byeveryone else.

In their race to the bottom price and in an effort to compete withthe royalty free producers, the large agency and other discounters are creating the idea in theminds of the buyers that their licensed images have the same extremely high volume usage as RF.

When we talk about the large agency "discounting their price" it plants in the mindof the buyer that this is a discount product, and ours is not.

In some cases theclient is simply using a negotiating strategy to try to get you to reduce your price, and infact doesn't have an offer from the other agency in question.

What Sellers Can't Afford To Do

Photographers and some stock agents often tell me that they get"mad" when they hear these low prices. The one thing you can not afford to do is Get Mad. Itwill accomplish nothing. You'll lose the sale and probably the client. Recognize that it isthe client's duty to try to get the lowest price they can for the image they want.

Youalso can't afford to match the big agency's prices. You'll never be able to generate the volumethey do without their advertising budget, and at the lower prices you can't hope to survivewithout that volume.

Look at other industries. There are major suppliers, but thereare also minor suppliers who charge higher prices and survive very well.

Be willingto lose some sales. Decide how low you are willing to go, based on your costs of doingbusiness, and don't go below that price. Don't be influenced by someone else's lower price. Always try to stay positive and friendly with the client.

Interestingly, some smalleragencies have noted that the price discrepancies are mostly for small sales under $1,000. Whenit comes to larger sales these large agencies seem to be asking the same kind of money aseveryone else. The theory seems to be that on these large uses, price is not a major factor. The client is much more committed to a specific image and is much less likely to switch imagesjust to save a few bucks. Consequently, on these sales everyone asks top dollar.

Unfortunately, discounting is probably here to stay and something we all all have to live with. The discounters may do the largest volume of sales, but they don't necessarily end up with thegreatest profits at the end of the day.

Organizing Photographers

Some have indicated that we should try to organizephotographers who are represented by the major agencies that are discounting, in an effort toget them to pressure their agency. For a variety of reasons, I don't think that will work. Therefore, I won't be getting involved in such an effort.

Most photographers with theseagencies are satisfied enough with the size of their overall check that they refuse to worryabout individual sales. Discounting has been going on for a long time, although not to theextent that it is occurring today, and none of these photographers have taken a stand so far. It is very easy for them to identify discount prices by looking at their sales reports andseeing how much they are being paid for individual sales.

Many of the majorphotographers get enough high ticket sales for advertising uses from their agency that they arewilling to accept low prices for small uses. The photographers who really lose on these low sales are those whoproduce images that usually sell for insert photos and other small uses, and whoseldom have an image used for major advertising purposes. They end up with only small sales andnothing big to offset.

Most photographers feel that their agency will not hesitate toget rid of anyone who complains, and that there are enough photographers waiting in the wingsthat the agency will have no trouble replacing them. If they protest at all, they tend tosimply stop producing.

It is interesting to note that the agencies that are discountingare also arguing that they must have a higher percentage of gross sales because they can'tsupport their operation on 50% of gross sales. It seems not to have occurred to them thatanother way to get the additional money they need to operate their business is to hold the lineon pricing.

The big problem is that photographers will not see a big drop in theirgross checks, but rather a slow withering away. Based on my experience it is almost impossibleto get photographers excited enough about a long range problem to motivate them to take action.

Thus, I feel it is better to recognize that discounting is here to stay and focus ourenergies on structuring our businesses with an eye to co-existence with discounters. People inother industries do it. Photographers can do it too.

The above copyrighted article(s) are for the sole use of Selling Stock subscribers and maynot be copied, reproduced, excerpted or distributed in any manner to non-subscribers without the written permission of Jim Pickerell, the editor. For subscription information contact: Selling Stock 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-251-0720, fax 301-309-0941, e-mail: jim@chd.com.

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.

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